Keynesian Economics is a theory that involves total spending in the economy, which effects output and inflation. Output is the amount if goods and services produced by an industry. It is used to stabilize the economy. This theory further states that free markets have no balancing systems that lead to full employment as part of a successful economic system. This theory is used to justify government intervention in the economy to maintain full employment and price stability. Keynes advocated for increased government expenditures and lower taxes to stimulate the economy and pull the global economy out of a depression.
Classical Economic Theory
In the Classical Economic Theory it was assumed that output and prices would eventually return to a state of equilibrium, but when the Great Depression occurred this theory was contradicted. Output was low, and unemployment was high. This is what caused John Maynard Keynes to take a alternate approach to economic theory and to think differently about the nature of the economy, this is when Keynes established real world applications that had implications for a society in an state of economic downturn like the Great Depression.
Stabilizing the Economy
Keynes advocated for and believed that government intervention was key to stabilizing an economy. He believed in activist policies to reduce the amplitude of the business cycle. Instead of seeing unbalanced governments as wrong he advocated for counter cyclical fiscal policies which would act against the business cycle. He took an opposite approach by reducing spending and raising taxes during a boom period, and increasing spending taxes during a recession. Keynes argued that the government should solve problems in the short run instead of waiting for market forces to fix things in the long run because as he stated "In the long run we are all dead". Keynesian Economic dominated the economic theory and policy after World War II until the 1970s. It was created in an attempt to understand the Great Depression, he advocated increased government spending and lower taxes to stimulate demand and pull the global economy out of the depression.
Benefits of Keynesian Economics
Keynesian Economics is an effective way to stimulate demand in the economy. Keynes states that an economy's output of goods and services is the sum of four components: consumption, investment, government purchases, and net exports. According to Keynes any increase in demand comes from these four components, therefore if there is a sudden decrease in demand it can be regulated using these four components. Keynesian economic theory is a very effective short term solution. Lowering taxes and increasing government spending eventually pulls the society out of a rescission, so they can start their recovery.
Keynesian Economics I
Keynesian Economics is a theory that involves total spending in the economy, which effects output and inflation. Output is the amount if goods and services produced by an industry. It is used to stabilize the economy. This theory further states that free markets have no balancing systems that lead to full employment as part of a successful economic system. This theory is used to justify government intervention in the economy to maintain full employment and price stability. Keynes advocated for increased government expenditures and lower taxes to stimulate the economy and pull the global economy out of a depression.
Classical Economic Theory
In the Classical Economic Theory it was assumed that output and prices would eventually return to a state of equilibrium, but when the Great Depression occurred this theory was contradicted. Output was low, and unemployment was high. This is what caused John Maynard Keynes to take a alternate approach to economic theory and to think differently about the nature of the economy, this is when Keynes established real world applications that had implications for a society in an state of economic downturn like the Great Depression.
Stabilizing the Economy
Keynes advocated for and believed that government intervention was key to stabilizing an economy. He believed in activist policies to reduce the amplitude of the business cycle. Instead of seeing unbalanced governments as wrong he advocated for counter cyclical fiscal policies which would act against the business cycle. He took an opposite approach by reducing spending and raising taxes during a boom period, and increasing spending taxes during a recession. Keynes argued that the government should solve problems in the short run instead of waiting for market forces to fix things in the long run because as he stated "In the long run we are all dead". Keynesian Economic dominated the economic theory and policy after World War II until the 1970s. It was created in an attempt to understand the Great Depression, he advocated increased government spending and lower taxes to stimulate demand and pull the global economy out of the depression.
Benefits of Keynesian Economics
Keynesian Economics is an effective way to stimulate demand in the economy. Keynes states that an economy's output of goods and services is the sum of four components: consumption, investment, government purchases, and net exports. According to Keynes any increase in demand comes from these four components, therefore if there is a sudden decrease in demand it can be regulated using these four components. Keynesian economic theory is a very effective short term solution. Lowering taxes and increasing government spending eventually pulls the society out of a rescission, so they can start their recovery.
Bibliography
Staff, Investopedia. "Keynesian Economics." Investopedia. October 03, 2017. Accessed November 16, 2017. https://www.investopedia.com/terms/k/keynesianeconomics.asp
"Back to Basics." What Is Keynesian Economics? - Finance & Development, September 2014. Accessed November 16, 2017. http://imf.org/external/pubs/ft/fandd/2014/09/basics.htm
"Keynesian Economics." Keynesian Economics: The Concise Encyclopedia of Economics | Library of Economics and Liberty. Accessed November 16, 2017. http://www.econlib.org/library/Enc/KeynesianEconomics.html
Davidson, Paul. John Maynard Keynes. Basingstoke: Palgrave Macmilan, 2009.
"Keynesian Economics." BusinessDictionary.com. Accessed November 20, 2017. http://www.businessdictionary.com/definition/Keynesian-economics.html.